Saturday, April 10, 2010

Frontiers of across-silo thinking in Indian finance

India has long operated a `silo system' where the financial industry was sought to be broken up into vertical silos associated with regulatory agencies. The word `regulation' is relatively little understood in India. Instead, there has been a central planning notion of comprehensive `control' of a given financial firm vesting in a given regulator, so that a somewhat feudal arrangement prevails in each silo.

This is not how an efficient financial system works. As Percy Mistry's report says, in the future, government needs to to reorganise itself to fit the regulatory requirements of a sophisticated financial system, instead of trying to force financial firms to reorganise themselves to fit the almost accidental regulatory architecture that prevails in India today.

In recent years, many changes in finance have hinged on breaking the strictures of this silo system. Two success stories that come to mind include ETFs on gold and currency futures.

In this setting, we have a big new development in across-silo thinking: an order by SEBI against insurance companies selling mutual-fund-like products without being regulated as mutual funds are. [pdf]

We need the Financial Stability and Development Council (FSDC) yesterday.

3 comments:

  1. the sebi order is very detailed. Ajay would like to know your thoughts on the order

    ReplyDelete
  2. that was an awesome piece from the SEBI - very well addressed and maybe was about time too.

    a tangent thought:

    the information dissemination has improved by leaps and bounds in recent years from the public sector enterprises and ministries ...some of the examples of this are:

    the first-ever Concall by the RBI, post the quarterly policy meet,

    orders/meeting agendas of SEBI
    http://www.sebi.gov.in/Index.jsp?contentDisp=Section&sec_id=2

    3g spectrum auction
    http://www.dot.gov.in/as/Auction%20of%20Spectrum%20for3G%20&%20BWA/new/index.htm

    status of mining licenses of companies
    http://mcas.nic.in/searchframe.asp?mvalue=link116

    i just hope we extend this kind of high quality real time information to the real estate sector too.

    ReplyDelete
  3. yes in agree with it there are different issues that the have to resolve.Between IRDA and SEBI.

    ReplyDelete

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